The announcement of a new multi-year agreement between Universal Music Group (UMG) and Spotify has sparked a significant rise in UMG’s market valuation.
On January 27, 2025, UMG’s share price surged by 7.35%, increasing its market cap by $3.4 billion, reaching $49.89 billion.
The Deal: A Game-Changer for UMG and Spotify
The deal, which includes a direct licensing agreement between Universal Music Publishing Group (UMPG) and Spotify, is seen as a game-changer for both parties.
One of the key elements of the agreement is expected to remedy the infamous mechanical royalty discount Spotify has been applying to UMPG payouts in the U.S.
The new agreement is believed to improve royalty payouts to UMPG and its songwriters, providing better compensation compared to previous arrangements.
Spotify had previously categorized its premium tier as a ‘bundled’ product by adding audiobooks to its offerings, which allowed the company to pay a lower royalty rate due to a 2022 ruling from the US Copyright Royalty Board.
However, this new agreement is expected to address those concerns and ensure fairer compensation for rights holders.
UMG’s Valuation Soars
The immediate impact of the deal was seen on the stock market. On January 27, UMG’s share price rose to EUR €26.00 from €24.22, marking a 7.35% increase.
This increase in share price boosted UMG’s market cap by EUR €3.4 billion, bringing its total valuation to EUR €47.56 billion (approximately USD $49.89 billion).
This rise in UMG’s valuation reflects strong investor sentiment following the announcement, as analysts and investors expect the deal to improve long-term revenue streams for the company.
Warner Music Group Benefits Too
Not just UMG, but Warner Music Group (WMG) also benefited from the news. WMG’s share price increased by 4.70% on January 27, adding $730 million to its market cap.
With a current valuation of USD $16.21 billion, WMG’s stock performance suggests that investors are anticipating similar favorable terms in its future deals with Spotify.
Together, UMG and WMG have added approximately $4 billion in market cap value following the announcement of the new UMG/Spotify deal.
What’s Next?
While Spotify’s stock remained steady, the rise in UMG and WMG’s valuations signals confidence in the future of music streaming.
As both companies continue to deepen their collaboration with Spotify, it’s clear that the music industry is set to benefit from new innovations and evolving offers.
The deal will likely have a lasting impact on the music streaming landscape, positioning both UMG and Spotify for continued growth, especially with the inclusion of new paid subscription tiers, bundling of music and non-music content, and enhanced catalog offerings.
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